Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
Craneware (LSE:CRW)
Why we like it: “Long-time Hidden Winners recommendation Craneware (LSE: CRW) is a software-as-a-service (SaaS) company that offers innovative solutions for the US healthcare industry. Even more so than the NHS in Britain, there’s a lot of money swirling around in the complex American healthcare system, where billing for services can be a Herculean task, prone to costly human errors. Craneware’s software tracks down missing and miscoded items on the chargemaster (a central list of billable items) and also aids in the usually manual task of researching coding and compliance changes, preventing this massive revenue leakage and cutting the burden on admin staff.
“Craneware has many of the key traits we look for in a Hidden Winner — despite residing in the small-cap AIM market, this is the market leader in a profitable niche, with a strong product suite and lucrative business model. Last year Craneware came close to sealing a large acquisition before the target chose another bidder. This time around, Craneware’s management team got their company, Sentry Data Systems. Sentry provides software improving the pharmacy operations of hospitals, pharmacies and clinics. This is an area where Craneware has been bulking up its own efforts organically and it looks like Sentry will fit into the company’s product suite quite nicely.“
Why we like it now: The newly enlarged Craneware group is going into its new financial year in quite good shape to accelerate growth by landing contracts with new customers and cross-selling both existing Craneware customers and Sentry customers each of the other company’s respective services. Management noted that while the US healthcare market’s recovery was slow following the pandemic that it was making “solid” progress on both fronts. Although the signing of new contracts may slow if the US economy enters a proper recession, healthcare spending on ongoing contracts is still largely defensive. With that safety net and net debt of just 1.2x EBITDA post-Sentry acquisition expected to fall even further this year due to the company’s solid cash generation, we think Craneware is in a good spot to continue investing in organic growth no matter the economic environment. At a EV/EBITDA ratio of 24x, Craneware is richly priced, which isn’t surprising given its record of profitable growth and opportunities ahead of it. But this valuation is still below its 10-year average and we think makes Craneware worth considering in December.
“Best Buys Now” Pick #2:
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